FiT ruling, government purchase and some interesting findings

The much awaited Canada FiT Appellate Body report is out. For those interested in a  quick look at the findings, here it is. The detailed 145 page decision for those die hard WTO fans is here. The IELP blog bringing out the aspect of the domestic policy space available for countries to implement renewable energy schemes had this initial reaction.

The implications of the decision for FiT programs based on local content requirements worldwide is important. One would also wait and see how the province of Ontario and Canada would respond in terms of compliance.

My initial reading of the summary and quick read of the decision indicates:

1. The mandatory local content requirements violate Article III:4 GATT and Article 2.1 of TRIMS.

2. They are not saved by the government procurement exception in Article III:8 GATT exception since there is no governmental purchase of renewable energy equipment. perhaps the striking feature of this decision is the distinction made between the electricity produced and the renewable energy equipment. The link that the Panel had found was over ruled.

"5.79. We have found above that the conditions for derogation under Article III:8(a) must be understood in relation to the obligations stipulated in the other paragraphs of Article III. This means that the product of foreign origin allegedly being discriminated against must be in a competitive relationship with the product purchased. In the case before us, the product being procured is electricity, whereas the product discriminated against for reason of its origin is generation equipment. These two products are not in a competitive relationship. None of the participants has suggested otherwise, much less offered evidence to substantiate such proposition. Accordingly, the discrimination relating to generation equipment contained in the FIT Programme and Contracts is not covered by the derogation of Article III:8(a) of the GATT 1994.530 We therefore reverse the Panel's findings, in paragraphs 7.127, 7.128, and 7.152 of the Panel Reports, that the Minimum Required Domestic Content Levels of the FIT Programme and related FIT and microFIT Contracts are laws, regulations, or requirements governing the procurement by governmental agencies of electricity within the meaning of Article III:8(a) of the GATT 1994. Instead, we find that the Minimum Required Domestic Content Levels cannot be characterized as "laws, regulations or requirements governing the procurement by governmental agencies" of electricity within the meaning of Article III:8(a) of the GATT 1994."

3. The Appellate Body did not come to the conclusion that the measure was a prohibited subsidy under Article 3.1 (b) of the ASCM.

Hence, though the program mandating local content was found to be in violation of GATT provisions it was not held to be a prohibited subsidy under the ASCM.

Development rights and Doha

An interesting article by Stephen Kim Park on contextulaizing developments rights in the overall debate of international economic law is found here.

Titled "Talking the Talk and Walking the Walk" in the Virginia Journal of International Law, it discusses the failure of the Doha round as well as proposes a new theoretical framework to address the complexities of issues on trade, development and equity.

"From Geneva to Beijing, Brasilia, Brussels, and Washington, D.C., there exists a modicum of consensus on the promise of trade as an engine of economic growth. Nonetheless, gross economic inequality— both between wealthy and poor countries and within individual countries — persists, and various social harms associated with liberalized trade garner significant attention. The collapse of the Doha Round presents new opportunities to consider anew the legal framework and process by which development objectives are identified and addressed in the global trade regime. The increasingly brighter spotlight placed on the WTO is testament both to the growth of cross-border commerce in the developing world and the important role of international trade law in defining the terms of these commercial relationships. 

... 

Based on a model of development rights as institutional communication, this Article raises procedural questions that suggest the value of institutional reforms to the WTO. Turning inward, such reforms may involve a re-thinking of the WTO’s Trade Policy Review Mechanism to promote best practices and the direct participation of NGOs and other representatives of civil society. Enhanced technical assistance and measures to facilitate coalition building among developing countries in all phases of the negotiating process would broaden stakeholder participation and lower information barriers among WTO members. Turning outward, greater use of mechanisms for inter-regime coordination, such as between the WTO and other international organizations (including the World Bank, the WHO, and the development agencies of the United Nations), would enhance the capacity of developing countries to meaningfully participate in discourse regarding trade and development and benefit from decisions that result. Finally, the promulgation of metarights or non-derogable rules, which would replace the aspirational principles of development in WTO agreements, could be considered as a prerequisite to a new round of WTO negotiations. The political viability and economic impact of these prescriptive measures constitute potential testable hypotheses for future empirical inquiry. Likewise, the principles of development rights, from which potential reforms may be derived, could be applied to the regulation of international finance and foreign investment law."

For all those trade negotiators involved in Doha... 

More imports - Why not?

Conventional wisdom is that exports are good for the domestic economy while imports are to be minimized. Apart from encouraging local manufacturing capacity, exports lead to a better balance of trade position.

Some thinking on why imports are good for the economy and the need to unilaterally cut tariffs is found in this piece titled "Tariff reform needed to boost the US Economy" by Bryan Riley.

"Economists were right in 1930, and they are right today. Although eliminating all remaining tariffs and quotas might sound like a radical idea to lobbyists for the sugar industry and other special interests, it is the consensus recommendation from U.S. economists. In 2006, 87.5 percent of respondents to a survey of 210 PhD members of the American Economic Association agreed that the United States should eliminate remaining tariffs and other barriers to trade.[35] More recently, a 2012 survey of prominent economists found that 85 percent agreed with the following statement: “Freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.”[36] Congress should listen to the economists, not the special interests, and engage in broad-based, permanent tariff reform."

This suggestion, similar to an earlier study,  is contrary to conventional wisdom of higher imports impacting local domestic industry. I had blogged about it here earlier. What about the policy objectives of creating a local manufacturing capacity, local industrialization, local employment, tariffs as a domestic policy tool, revenue generation as well as the current account deficit? Is the policy of import liberalisation to ve viewed differently in developed and developing economies? No one size fits all?

Hat tip to Scott Lincicome for referring to this issue in his blogpost here.

Bio-Ethanol - The next big dispute at the WTO?

A dispute between EU and the US over anti-dumping duties on US Ethanol seems to be brewing. In a letter to the USTR some US Senators have raised the issue of this move by the EU imposing a 5 year duty on ethanol produced in the US. More news about the $83.03 per metric ton tariff on US produced ethanol is found here and here.The EU has essentially determined that US produced ethanol has been dumped in the EU - the average normal price is less that the average export price.

The EU notification imposing the definitive anti-dumping duty on US produced bio-ethanol is found here.

Would this be the next big WTO dispute between the US and the EU?

IPR protection, Special 301 Report - 2013 Annual Report out

For those interested in intellectual property protection issues around the world and the US view on enforcement of these rights the 2013 Special 301 Report was released yesterday. It is found here. I had blogged about the previous year's report here.

As usual I am not commenting on the details of the report but confining myself to the aspects of dispute settlement that were referred to here. The report stated:

"The United States continues to monitor the resolution of disputes announced in previous Special 301 reviews. The most efficient and preferred manner of resolving concerns is through bilateral dialogue. Where these efforts are unsuccessful, the United States will not hesitate to use the WTO dispute settlement procedures, as appropriate."

No surprises here in the use of dispute settlement at the WTO to pursue perceived national interest. I was curious to know if any reference to the the proposed measures by Antigua in relation to the US Gambling case (DS285) would be referred to in terms of cross retaliation in the intellectual property space. Reference to this, though not directly related to that dispute, made interesting reading:

"Also of concern is the distribution over the Internet of software that allows for the circumvention of technological protection measures used by rights holders to protect their content. A particularly troubling example is that of SlySoft, a company headquartered and operating in Antigua, which developed and sells a program called “Any DVD HD” enabling the user to defeat the encryption technology embedded in Blu-ray Discs that prevents unauthorized reproduction and distribution. Antigua’s Copyright Act makes it illegal to manufacture or import for sale or rental any such circumvention device. The consortium of electronic manufacturers, software companies, and motion picture studios that developed these technological protection measures has worked with the criminal enforcement authorities in Antigua for over 5 years to enforce this statute and have this case prosecuted. However this case has proceeded very slowly."

I was just trying to envision the implication of this technology for Antigua's next moves on the cross retaliation issue in the US Gambling case. No bets on this issue!

Local jeans, tariffs and WTO disputes

Reports of an EU tariff on US made jeans was in the news recently. This is a result of a longstanding dispute which has reached the compliance stage - the EU measures are in relation to non-compliance by the US of the WTO decision in DS217 (United States — Continued Dumping and Subsidy Offset Act of 2000) in relation to the Byrd Amendment.The dispute itself had many other complainants (9 of them).Would the impact be much more if all these complainants imposed retaliatory tariffs?

I had blogged months ago about the urge to "but local". 

Some lessons from this dispute:

1. Compliance in WTO disputes need not always result in doing away with the challenged measure.the measure can continue but the country must be prepared to face the trade consequences.

2. WTO disputes, at times, are lengthy propositions - compliance and retaliation can take years. We have seen many disputes that are pending for ages.

3. The WTO dispute settlement system does have teeth - non-compliance can lead to retaliatory tariff. One can ignore implementing a WTO decision. But retaliation can be a consequence.

Krugman on protectionism

While there are allegations that the protectionist trend across the world is increasing due to sluggish global economy recovery, Paul Krugman believes that as compared to the Great Depression in 1929 countries have not shown a protectionist surge this time around. The chief reason for this, he opines in his NYT op-ed, is the fact that an institutional framework perhaps exists to deal with protectionism:

"So why, exactly, aren’t we seeing more protection? Why aren’t politicians — even conservative politicians — looking at the situation and saying, hmm, a tariff won’t increase the deficit, it won’t involve debasing the currency, but it could clearly help create jobs? 

One answer might be the “Smoot-Hawley caused the Depression” thing; this isn’t true at all, but it might be serving the purpose of a noble lie. 

Or maybe it’s the structure of trade agreements. The countries that arguably could really, really use some protection right now are inside the European Union, so no go. Countries outside still know that any protection they impose will lead to big problems at the WTO; the United States has to know that a protectionist response would break up the whole world trading system we’ve spent almost 80 years building."

I am not so sure that the protectionist trend has subsided. A look at the WTO disputes and proceedings of the various Committee meetings, especially the ASCM, at the WTO indicate that countries continue to impose tariff and non-tariff barriers as well as prohibited subsidies, inconsistent with WTO rules, to protect domestic industry. Perhaps the extent and scope of these measures have lessened over the years.It may be a matter of degree rather than fact.It also depends on what you define "protectionism" as.